Preference Shares

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Ownership

PREFERENCE SHARES VS ORDINARY SHARES

Classification of Redeemable Preference Shares:

Holders of the Preference Shares receive a cumulative dividend, subject to the terms of the Preference Share Class issued. The Preference Shares do not have the right to participate in any additional dividends declared to Ordinary Shareholders. These shares do not have Voting Rights at general meetings of the Company.

Preference Shares, are mandatorily redeemable on a specific date…

The Preference Shares are Redeemable after 60 months from the initial issue date and as a result are classified as debt and disclosed as such in the statement of financial position. Preference Shares, which are mandatorily redeemable on a specific date, are classified as liabilities

Investors could not “unsee” the wording of Mandatorily Redeemable/100% Secured.

The Directors who committed the fraud will try to put the spotlight on the investors who invested within the company and their own conduct, knowledge, and motives. They will say that these “Offended Investors” had access to material information, and itself sought to score a huge profit despite known or knowable risks. The Directors may argue, the investors are seeking to blame someone else for the consequences of their own decisions.

When issuing shares be sure to plan for the long term because things can become very complicated quickly

Preference Shares vs Ordinary Shares: Various cases have been listed and recorded in various “Court Cases” within South Africa, and inevitably most of these Courts found in favour of the company. The reason been that Ordinary Shares have “No Par Value”, the value is determined by the stock in which it trades. Companies cannot be held responsible for price fluctuations of the market, the trading times, demand and supply of ordinary shares.

However: Preference Shares have a par value, the price is determined by the company prior to the issuance of these instruments. The company issues them with a listed price, with a beginning and end date of maturity or redeemable date. Investors invest into the preference shares of a company as they verily believe thy would hold preferential rights within the company above the holders of ordinary shares.

TYPES OF SHARES

The Companies Act 71 of 2008 (“the Act”) provides for the authorisation and issue of various classes of shares by a company. Although shares can hold many different descriptions, shares can be basically divided into two categories, namely ordinary shares and preference shares. Various different rights and obligations are attached to these catergories of shares, ranging from voting rights, preferential status in relation to the payment of dividends and the return of capital as well as an obligation to comply with the provisions of a company’s memorandum of incorporation or “MOI”. The class of shares to be employed and preferred by shareholders will depend on the particular circumstances at hand and may be tailored to fit the situation, as well as to address the specific concerns and needs of each shareholder. There is no ‘one size fits all’ approach when it comes to a company’s shares.. A profit company means a company incorporated for the purpose of financial gain for the shareholders:

See “The Dump”

What are the different types of shares in a limited company?

Where a limited company has several shareholders with various amounts of money invested, different types of shares can be allocated with different ownership, conditions, and rights. These tend to be: Ordinary shares Non-voting shares Preference shares Redeemable shares Ordinary shares Ordinary shares are the most common type. They carry one vote per share and they entitle the owner to participate equally in the company’s dividends. If the organisation is wound up, the proceeds are again allocated equally, Ordinary Shares have “No Par Value”, Ordinary shares carry voting rights but rank after preference shares with regards to rights to capital, in the event that the business is wound-up. It’s possible to break these shares down into different classes, which will be explained later.

Preference shares

Preference shares entitle the owner to receive a fixed amount of dividend every year. This is received ahead of individuals that hold ordinary shares. It is also usually as a percentage of the nominal value (the value stated when the shares were issued). Redeemable shares Redeemable shares are issued on the terms that the company will/may buy them back at a future date. This is either fixed or, set at the director’s discretion. It’s usually done with non-voting shares given to employees so that if the employee leaves, the shares can be taken back at their nominal value. If the company is wound up, any assets left after all debts have been paid off can be distributed to shareholders. Different classes of share may have different rights to capital distribution. Ordinary shares are the most commonly used share in companies, where typically one share equals one vote, and each share possesses equal rights to dividends. Ordinary shares are therefore the residual (or primary) class of shares. The dividends paid to the shareholders who hold ordinary shares is not a secured amount and fluctuates in accordance with the profits of the company. However, the holders of ordinary shares are generally entitled to vote at general meetings of shareholders

Ordinary shares will be preferable if the intention is to extend or control voting power, since preference shares usually carry none of these rights

Other share options include preference shares, redeemable shares, cumulative preference shares. The rights shareholders have can be limited through the use of these different classes.

Preference shares on the other hand tend to be a useful mechanism for providing a return on investment without handing over control of the company.

If a company decides to have more than one class of shares, the MoI will specify the different rights and voting rights attached to each class of shares. It is possible to exclude voting rights in specific classes. However, it should be noted that when amending the existing rights of the specific class, the holders of that class have the right to vote on the matter.

This means that preferred shareholders must be paid for their interest in the company before common shareholders in the event of company bankruptcy and liquidation

A company cannot, however, only have preference shares and must have another class of shares as well. Preference shares generally enjoy no voting rights although voting rights may be authorised by the MOI usually for specific circumstances such as arrear dividend payments.

Balance Sheet 2019 : “In 2014, we introduced a preference share programme, which offered investors attractive yields and 100% capital redemptions after five years. The first of these redemptions took place in September this year, with a significant percentage of investors entrusting their investments to us for a second term.